- USD/CHF is looking for recovery after a pullback move amid the risk-off impulse.
- S&P500 futures have ignored the risk-aversion theme amid the upbeat US economic outlook.
- Geopolitical tensions between the US and China have improved the US Dollar appeal.
The USD/CHF pair has corrected marginally to near 0.9330 after printing a fresh six-week high around 0.9350 in the early Asian session. The Swiss franc asset is expected to recover sooner as the risk profile is supporting the safe-haven assets. The US Dollar bulls seem in control as the Federal Reserve (Fed) policymakers are reiterating the requirement of more rates by the central bank to bring down inflation to the 2% target.
The US Dollar Index (DXY) has shown a pullback to near 104.15, however, the upside bias is still favored as rising hawkish Fed bets have dampened the market mood. Contrary to the risk-aversion theme, S&P500 futures displayed recovery as investors are focusing on upbeat demand, recovery in economic activities, and rising labor requirements rather than underpinning the risk associated with higher interest rate projections.
The context that investors have started digesting higher interest rates by the Fed has resulted in a decline in the demand for US government bonds. The yields provided on 10-year US Treasury bonds dropped to near 3.89%.
Meanwhile, geopolitical tensions between the United States and China have improved the US Dollar appeal. US Treasury Secretary Janet Yellen cited on Thursday “Communication between US and China is important for the rest of the world. And, the US will resume discussions with China on economic issues ‘at an appropriate time’.
For further guidance, US Core Personal Consumption Expenditure (PCE) Price Index and Personal Spending will be keenly watched. On an annual basis, the economic data is seen higher at 4.3% vs. the former release of 4.4%. The monthly data is expected to escalate by 0.4% against 0.3% released earlier. And, January Personal Spending is expected to increase by 1.3% against a contraction of 0.2%. A recovery in personal spending will accelerate the chances of more rates by the Fed.
On the Swiss Franc front, the rising Consumer Price Index (CPI) is creating troubles for the Swiss National Bank (SNB). Therefore, more rate hike announcements by SNB Chairman Thomas J. Jordan looks warranted to counter “increased inflationary pressure and a further spread of inflation”.